21/09/2009 ­ Strengthening innovation, deepening the single market and moving to a low carbon economy are among the areas where reform needs to be accelerated to strengthen long-term growth in the European Union after the worst recession in 50 years, according to a new OECD report.

The < http://www.oecd.org/document/11/0,3343,en_2649_37443_43709451_1_1_1_37443,00.html > Economic Survey of the European Union says Europe has responded promptly to the crisis amid signs that member countries will emerge from the recession earlier than expected. But it adds that emergency policies to stabilize financial markets and support the economy must not endanger the single market and must be withdrawn once the economy recovers.

Other structural reforms needed to help prevent future financial crises and improve economic performance include improving financial regulation and supervision, raising the long-term sustainability of public finances and further increasing foreign access to European markets.

"Economic crises can offer opportunities to carry out important reforms to reinforce the long-term resilience of the economy," said OECD Secretary-General Angel Gurría. "The current crisis has already triggered ambitious reforms to tackle weaknesses in the financial system which, if achieved and implemented effectively, should support longer-term growth prospects."

The survey notes that fiscal actions across nearly all member countries, deep cuts to short-term interest rates, quantitative and credit easing policies and actions to stabilise financial markets are helping Europe to weather the economic storm.

A major challenge for the EU over the longer-term is to raise the level of innovation; despite numerous policy initiatives, Europe still lags behind the United States and Japan in research and innovation. An integrated labour market for researchers, a European Community patent and a Unified Patent Litigation System would help to stimulate innovation. Tackling obstacles to the funding of innovation and encouraging research co­operation are also critical.

Growth would also be boosted by enhancing competitive pressures in the single market. The Services Directive needs to be implemented in a timely and effective manner and actions taken to ensure proper implementation of single market rules. Competition in financial services, energy markets and network industries can all be raised further.

The EU must continue to resist the rise in protectionist sentiment and push for global trade liberalisation, the report adds. Although recent reforms have reduced distortions in the Common Agricultural Policy, support could be further decoupled from production and payments better targeted to achieve ecological, social or other policy objectives.

The report says policies to reduce greenhouse gases, promote low­emission technologies and cut energy consumption are helping Europe to become a low-carbon economy. But the measures need to focus more on correcting only genuine market failures and be flexible enough to cope with future environmental, economic and technological changes. Faster liberalisation of EU electricity and gas markets is critical to increase competition and improve energy security.

To obtain a copy of the OECD Economic survey of the European Union, journalists should contact the OECD's Media Division (< mailto:embargo@oecd.org> bochra.kriout@oecd.org ; or tel: + 33 1 4524 9700).

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